The diagram to the right illustrates a competitive market in which the product provides an external benefit.

The diagram to the right illustrates a competitive market in which the product provides an external benefit. If a voucher equal to $20/unit (i.e., a voucher equal to the marginal external benefit) is given to consumers, then total surplus will

A. fall by Area D.

B. fall by Area A+B.

C. fall by Area B.

D. rise by Area C+D.

E. rise by Area C + F.

Expert Solution

Answer: E

Before the marginal benefit (MB):

Total surplus is the area bounded by (S = D).

After the marginal benefit (MB):

Total surplus is the area bounded by (S = MB). Therefore, there are C and F additionally. The aggregate of these two (C + F) is the excess consumer surplus, which rises.

Other options are not relevant.

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